Question

The following transactions of Acer Downyoccurred during 2018​:

Answer 1

Answer:

Acer Downy (Landing)

1. Journal Entries:

April 30

No Journal Entries Required

Jun. 30

Debit Warranty Expense $8,400

Credit Warranty Payable $8,400

Jul. 28

Debit Warranty Payable $5,800

Credit Cash Account $5,800

Sep. 30

Debit Legal Expenses $110,000

Credit Copyright Violation Claims $110,000

Dec. 31

Debit Warranty Expense $9,200

Credit Warranty Payable $9,200

b. Balance in Estimated Warranty Payable:

Jun. 30 Warranty Expense $8,400

Jul. 28  Cash Account       ($5,800)

Dec. 31 Warranty Expense $9,200

Balance                               $11,800

Explanation:

1. Since it is estimated that it was remote for Landing to lose the case, there is allowance made for the legal consequences.  It will be disclosed in the notes that such a lawsuit was confronting Landing.

2. Warranty costs are part the costs of its selling expenses and therefore part of its SG&A expenses.  The accounting entries are to debit Warranty Expense and to credit Warranty Liability or Payable.  Warranty expenses arise from warranty claims put forward by customers for the repair or replacement of, or compensation for non-performance or underperformance of an item as provided for in its warranty document.

3. Copyright (Intellectual Property Rights) infringement or piracy is the use of works protected by copyright law without the required permission.   The violation infringes some certain exclusive rights granted to the copyright holder, such as the right to reproduce, distribute, display, etc.

4. When a liability becomes probable, there should be an allowance for it.